Foxconn writes off entire $200-mn Snapdeal investment

FIH Mobile Ltd, a subsidiary of Taipei-headquartered Foxconn Technology Group, has written down the remaining $40 million of its $200 million investment in Indian online marketplace Snapdeal. This means that the contract electronics manufacturer has effectively declared its entire investment irrecoverable as it had already written down $160 million of its stake in the e-tailer last year.

“As the recoverable amount of the investment in JIPL (Jasper Infotech Private Limited) is minimal, the Group decided to make a further $40 million impairment loss as at 31 December 2017. As a result, JIPL represented no more shares of the Group’s total assets as at 31 December 2017,” FIH Mobile said in its 2017 annual report.

JIPL is the parent company of Snapdeal.

The report from the Taiwanese company’s subsidiary stated that the failed merger deal with Flipkart and the following market scenarios have played a key role in Snapdeal’s eventual market share losses.

“On 18 May 2017, the substantial shareholders of JIP and an independent third party (the “Potential Purchaser”) signed a non-binding acquisition offer and exclusivity letter. Pursuant to the Letter, the Potential Purchaser shall acquire all shares of JIP at a purchase price based on US$1 billion enterprise value of JIP. In late August 2017, the Letter was terminated by the Potential Purchaser because of dissent of minority shareholders and complicated tax problems between Singapore and India where JIP and the Potential Purchaser are incorporated,” the report said.

The company recognised $160 million impairment loss as of 19 May 2017 based on the valuation amount of the potential merger deal with Flipkart, the report stated. “In 2017, the main market players had moved into the next stage to provide more products and services via collaboration with various business partners, which limited the room for JIPL to develop in the future,” it said.

According to FIH Mobile, the recoverable amount from Snapdeal is estimated to be $3 million.

The development was first reported by The Economic Times.

In July last year, Snapdeal had scrapped a proposed merger with bigger rival Flipkart after months of negotiations and had decided to tweak its business model, cut costs and slash headcount in a bid to revive its fortunes.

In August 2015, FIH Mobile had picked up 4.07% stake in Snapdeal when it led a $500-million (Rs 3,250 crore) funding round in the homegrown e-tailing firm along with Chinese e-commerce giant Alibaba and Japanese internet conglomerate SoftBank. Snapdeal’s other existing investors Temasek, BlackRock, Myriad and PremjiInvest also participated in this round.

In May last year, SoftBank Group had reported a valuation loss of $1.4 billion on its two flagship investments in India, cab-hailing app Ola and Snapdeal. In its annual report for the financial year ended March 2017, the company said it “recorded loss from financial instruments at Financial Assets and Liabilities at Fair Value through Profit or Loss (FVTPL) of ¥160,419 million ($1.4 billion).” This mainly resulted from a fall in the fair value of financial instruments at FVTPL from March 2016 to March 2017.

“[The] Highly competitive e-commerce market in India has made a trend of the company’s business performance lower than initially anticipated,” the report added, referring to Snapdeal’s dismal show over the past few quarters then.

It must be noted that these numbers often reflect intricacies of accounting practices and currency fluctuations, and should not always be looked at in absolute terms.

In total, Snapdeal has raised around $1.65 billion from about two dozen investors, including SoftBank, Alibaba, Foxconn, global online marketplace eBay Inc., the ad-for-equity investment arm of media firm Bennett Coleman & Co. Ltd, and venture capital investors such as Bessemer Venture Partners, Intel Capital and Kalaari Capital, among others.